Ryanwb

My wife and I are really looking to take advantage of this down market and buy some rental property. We found a quadplex that has all the units rented out for $275,000 that is in forclosure, our payment would be about $2200 a month and with the rent of each tenent our total monthly income would be $200.00

However, it would be very difficult to carry the payment if even one unit was unfilled. This same structure sold in 2005 for $475,000 so we think if we could sit on it for a few years we could make some serious cash. We're not looking for the rent, rather the appreciation of the property

Is this a wise strategy or should we look at maybe a single family home and rent it out. I don't know if anyone has been looking at what homes are going for right now, but we could get a property for $140,000 that sold last year for $275,000... it's crazy!

82CardsGrad

If you have a bunch of free time on your hands and don't mind being a land-lord/slum-lord, go for it as it sounds like a pretty decent investment...

You can always look into hiring a management company which of course would cut into your profits... Though, not getting the phone calls at 2 in the morning is a nice feature...

Ryanwb

Wow! I had no idea it was like that. My wife and I rented a house when we first got married and we never called our landlord for anything, if anything broke I just fixed it and deducted the supplies from my rent check enclosing the receipts. I just assumed all tenents were like us

My main concern is being able to make the payments, like I said I could not swing it if the units aren't occupied.... well not without tapping into a home equity loan or our savings

Gaddabout

I was an agent for investors and managed 60 units for two years up until Sept. 2006. If the 4-plex is less than 20 years old, it's almost always a better deal than a single-family home because you're going to get more rent per square foot.

Even in a decent rental market (like we're in right now), you're going to have vacancies throughout the year. Can you afford it with an 80 percent occupancy for a year? That's not a pretty number -- 90 percent is about ideal -- but you never use the ideal number for planning. Managing it yourself is fiscally smart, but realize you're introducing yourself to a whole new world of headaches. Something will always break, and tenants will call on stuff they wouldn't give a second thought about if they owned it themselves (a chip on the bathroom counter, for example, or a slow flushing toilet).

Even with the tumbling SFH prices, you're still likely looking at a negative cash flow with a SFH because rental prices never adjusted to the market upturn. I can lease an almost-new 4 BR in Queen Creek for $750. I can lease a 3BR in Alta Mesa for $950. I can lease a 3BR in the Dobson Ranch for $1,000. I can lease a 4BR in north central Phoenix for $1,100.

The people who come through your four plex will almost always be down on their luck and looking for a second chance (or third chance or fourth chance). You won't be spending a lot of time scrutinizing their credit. All you're looking for is a decent rental history and an absence of violent/drug-related felonies. If your standards are higher than that, you're almost guaranteed a lot of vacancies -- especially with the mass exodus of illegals who used to fill up those four plexes in the past.

Good luck with that, though. Even if you don't take the dip, I think you're looking smart for thinking about it and investigating.

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Before I saw him, I could figure things out. He was the first guy I saw close-up and just didn't get what he was doing. Josh Freese on Vinnie Colaiuta

Ryanwb

Thanks Gaddabout! Thats the info I was looking for... my finance guy is all pushy and I can't get a straight answer out of him.

I think we'll look for the SFH because it sounds like it would be easier to deal with 1 family rather than 4. Plus the unit next to the one we were looking at just got busted for being a drop house

Gaddabout

You're only a slum lord if you don't fix necessary stuff. Most of the four-plex owners I worked for were multimillionaires who understood fixing things the right way was better for their long-term investment, not just keeping tenants happy.

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Before I saw him, I could figure things out. He was the first guy I saw close-up and just didn't get what he was doing. Josh Freese on Vinnie Colaiuta

Gaddabout

I would call an agent that specializes in investment properties. If you don't know one, I'd be happy to introduce you to my father, who's done this for 30 years (as an investor and a broker).

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Before I saw him, I could figure things out. He was the first guy I saw close-up and just didn't get what he was doing. Josh Freese on Vinnie Colaiuta

Ryanwb

We're going to look at some properties on Monday and we still don't know if we can afford it. If we have some questions I'll take you up on that offer

AzCards21

Good advice, I had a friend that had many rentals and his philosophy was keep a premium property and get a premium price. His tenants were happy and tended to be more responsible and had pride in their residence. Seemed like a win for all involved.

And yes Ryan, we have been thinking along the same lines. This may be a golden opportunity to pick up some rentals.

bankybruce

Hey Ryan, it sounds great, where is it at?

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"What's a nubian" Banky Edwards, Chasing Amy

82CardsGrad

$500 per month in rent is a "premium price"?? This was my point... The type of people you will be dealing with in this price range tend not to treat a rental with great care... It won't be fun...

Gaddabout

Most landlords are good landlords. They're not going to fix every little thing, and you may have to wait a couple weeks to get that garage door fixed, but they're not going to let you go without air conditioning in the summer. One of my landlords put a family in the Hilton for three days while he replaced an entire 5-ton roof unit on one of his houses. Cost him about $4 grand to replace the unit, so the additional $500 in hotel bills was a drop in the bucket for him. He just wrote it off once I provided receipts.

Another tip that might prove helpful: If you're not going to hire a management group, create your own corporation and run all your rents through a corporate trust account. Protect your ASSets. Never let anyone write you a personal check, and certainly don't let them put your name on anything. The Arizona Landlord Tenant Act is pretty specific about things like deposits, and I don't know many people who want rents to be taxed as personal income. Depends on your current tax rate, I guess. Knew a guy who deposited $1,800 in deposits in his personal account. When he couldn't produce them for the tenant (has 14 days from legal vacancy), he was on the hook for three times the deposits. The 8 to 10 percent a management company charges is usually worth it if you're not comfortable handling money and compiling legal minutae.

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Before I saw him, I could figure things out. He was the first guy I saw close-up and just didn't get what he was doing. Josh Freese on Vinnie Colaiuta

Gaddabout

That's a faulty bias, 82. Most of the worst damage I ever had was in the upper price ranges for single-family homes. When you add a yard, pool, higher utilities, dogs ... that's when the $$$ damage is done. The only problems I had with my four plexes had to do with functional issues of poorly maintained buildings. I had good success filtering out most of the trouble makers by using this process:

- Ignore lots of credit dings. Could care less if they owe Sprint $580 or they defaulted on that diamond ring for their girlfriend. As long as they've had two years of leasing history and they've never had an eviction, that's what I cared about.

- No domestic violence, no drug arrests, no DUIs. This was about 30 percent of my traffic. I would tell people this, and they would still give me their $35 for credit reports. Couldn't believe how stupid some people were.

- One year leases only. If they wanted more than a year I might reduce their rent $30 to $50 a mo., but only with good credit. Never month-to-month unless it's the default agreement on an expired lease (most leases default to this if no 30-day notice has been given on either side).

- No smoking clauses in all of my contracts. Violation is grounds for immediate eviction.

- No checks for rents under $700 mo. It was never much fun walking away from a lease signing with $1,500 cash on my person, but it was much better than finding out a week later I'd been given a rubber check or someone passed me a faked cashier's check. I'd make a trip to these units at 7pm on the 1st of each month and collect the rent in cash. Most of the time I never heard from them again until the next month.

These are pretty good safeguards against bad tenants. A lot of people try to hike up the deposits, but that's just punitive. Most people in this price range don't have first month's rent + full mo's rent deposit. I'd usually have move-in specials for my four-plexes ... full deposit + half-off first month's rent. Move-in total was less than $1,000 and I still had a full deposit. If they moved in at the end of a month I usually gave them those days for free so they had some cash to turn on utilities.

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Before I saw him, I could figure things out. He was the first guy I saw close-up and just didn't get what he was doing. Josh Freese on Vinnie Colaiuta

82CardsGrad

That's cool Gadd... I beg to differ however. Perhaps you were lucky. But I can assure you that $500 a month 4-plex's seriously raise the chance for serious issues. Tenant deliquencies... Property damage... Eviction issues...
You tactics above are solid - in a "best-case" world... However, it's much more difficult to administer that type of oversight and control when you NEED to get the rent coming in. Ryan indicated that he NEEDS the rental income otherwise he would be seriously stretched. That is not a good recipe for getting involved in multi-unit investments in this price range...

Gaddabout

Oh ... some advice on buying single-family homes as an investment:

- NEVER, EVER buy a two-story home unless it's the world's greatest deal. Even then, expect heavy discounts on rent to get it rented. Renters hate two-stories. The houses feel much smaller than they usually are, and things like ease of doing laundry are considered. Single-level homes are generally easier to sell, too.

- Avoid pools if you can. This is a massive upkeep cost, tenants rarely care to take care of it themselves, and will usually cost you at least one new pool. I'd be tempted to fill it up with concrete if I bought an investment property with a pool.

- NEVER, EVER buy anything less than a three bedroom as investment property. Two-bedroom bungalos are nice if you're going to retire in them, but they're a bear to rent and they're not easy to sell. Three bedrooms are great, but four bedrooms are better -- even smaller square footage at, say, 1,500 sq. ft.

- Sometimes a deal isn't a deal. Ask your broker about tax laws regarding investment properties. The cost of paying more for a newer home might be worth it if your investment is longer than five years.

- ALWAYS consider location. That tacky 4-bedroom in an older Tempe neighborhood might be a better investment than the snazzy 4-bedroom in SE Gilbert simply because that Tempe home will almost ALWAYS have reliable tenants in it. Renters -- more than owners -- weigh their commute time as extremely valuable. A home in NE Mesa might seem too far, but if it's less than 10 minutes from the 202, that's a great location for a rental.

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Before I saw him, I could figure things out. He was the first guy I saw close-up and just didn't get what he was doing. Josh Freese on Vinnie Colaiuta